UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT. No No

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1 PRECEDENTIAL UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT No No RITA L. TRISTANI, by and through her Attorney in Fact, MARIA C. KARNES; JOSHUA C. VALENTA, individually, and on behalf of others similarly situated; A. H., individually and as parents and natural guardian of A.H., a minor v. ESTELLE RICHMAN, in both her individual and official capacity; FEATHER O. HOUSTON, in her individual capacity, Estelle Richman, in both her individual and official capacity; Feather O. Houston, in her individual capacity, Appellants in Rita L. Tristani, by and through her Attorney in Fact, Maria C. Karnes; Joshua C. Valenta, individually, and on behalf of others similarly situated, Appellants in

2 On Appeal from the United States District Court for the Western District of Pennsylvania (D.C. No. 06-cv-00694) District Judge: Honorable Joy Flowers Conti Argued April 15, 2010 Before: SLOVITER, and HARDIMAN, Circuit Judges and POLLAK *, District Judge. (Filed: June 29, 2011) Patrick J. Loughren [ARGUED] Loughren, Loughren & Loughren 3204 Grant Building Pittsburgh, PA Robert F. Daley D. Aaron Rihn Robert Peirce & Associates 707 Grant Street 2500 Gulf Tower Pittsburgh, PA Veronica A. Richards Richards & Richards Perry Highway * The Honorable Louis H. Pollak, Senior District Judge for the United States District Court for the Eastern District of Pennsylvania, sitting by designation. 2

3 614 Penn Street Warrendale, PA Attorneys for Appellees/Cross-Appellants Jason W. Manne [ARGUED] Office of General Counsel Department of Public Welfare 300 Liberty Avenue 303 State Office Building Pittsburgh, PA Attorneys for Appellants/Cross-Appellees OPINION OF THE COURT HARDIMAN, Circuit Judge. In 1965, Congress amended the Social Security Act to create a program for states to assist the poor with their medical expenses. Through this program, known as Medicaid, the fifty states pay medical expenses on behalf of qualified beneficiaries. For more than thirty years, in circumstances where third parties are liable for such medical expenses, the Pennsylvania Department of Public Welfare (DPW) has recouped its expenditures by asserting liens against future settlements or judgments. In Arkansas Department of Health and Human Services v. Ahlborn, 547 U.S. 268, 280 n.9, (2006), the Supreme Court assumed without deciding that such liens, when limited to the portion of a settlement or judgment constituting reimbursement for medical costs, are an implied exception to the federal law prohibiting states from imposing liens on the property of Medicaid beneficiaries. We now 3

4 must decide whether these liens in fact constitute such an exception. I This appeal involves a putative class action filed by three Pennsylvania Medicaid beneficiaries subject to DPW liens. The District Court certified a question for interlocutory review pursuant to 28 U.S.C. 1292(b), asking us to determine whether state agencies responsible for administering the Medicaid program have the authority to assert such liens and, if so, whether Pennsylvania s statutory framework is consistent with the Supreme Court s decision in Ahlborn. We begin by reviewing the facts of the state court cases filed by each of the three plaintiffs (collectively, the Beneficiaries). A 1 Rita L. Tristani underwent a bunionectomy in 1999 that resulted in pain and discoloration in her leg. Her surgeon suspected that she was suffering from deep venous thrombosis, and immediately referred her to the hospital. Upon her arrival, Tristani was examined by a medical resident who misdiagnosed her condition as superficial thrombophlebitis. Roughly one week after the misdiagnosis, Tristani suffered a massive pulmonary embolism and stroke, which left her partially paralyzed, disfigured, and brain-damaged. Consequently, Tristani resides in a facility where she receives full-time medical care. Tristani was eligible for assistance under Pennsylvania s Medicaid program, and the DPW the state agency responsible for administering Medicaid paid for her medical care. In September 2001, Tristani filed a medical malpractice action in which she sought, inter alia, the costs of medical expenses that had been paid 4

5 on her behalf by the DPW. Approximately two months after the complaint was filed, the DPW wrote Tristani s counsel that, as a recipient of medical assistance, Tristani had assigned her right to recover medical expenses to the DPW. In May 2002, Tristani preliminarily settled her malpractice claim for $5.2 million. Thereafter, seeking to recoup funds it had expended for Tristani s medical care, the DPW sent Tristani s counsel another letter asserting a lien of $247, against her settlement. The agency later reduced this lien by 40% to $148, to bear its proportionate share of Tristani s contingency fee obligation to her counsel. On June 2, 2005, the state trial court issued an order directing payment of the DPW s lien in full. 2 In January 2005, Joshua Valenta was injured in a traffic accident and suffered relatively minor, but permanent injuries. Valenta was eligible for government assistance, and the DPW paid $15, for his medical expenses. 1 Following his accident, Valenta sued the tortfeasor, whose insurance carrier settled the case for $130,000. In April 2005, the DPW sent Valenta s attorney a letter informing him that, as counsel for a Medicaid recipient in a 1 Unlike Tristani, Valenta was enrolled in a managed care organization (MCO) that contracts with Pennsylvania to provide medical assistance. Pursuant to that contractual arrangement, the MCO receives a monthly capitation fee for each enrolled member, in exchange for which the MCO pays health service providers for the cost of the member s medical care. Although Valenta was enrolled in an MCO, the DPW paid the bulk of his medical fees directly. In addition to these direct payments, the DPW also paid the MCO $1, in capitation fees on Valenta s behalf, and the MCO ultimately disbursed $42.35 in connection with his injuries. 5

6 third-party liability tort action, Pennsylvania law required him to satisfy the DPW s claim prior to making a distribution to his client. In August 2005, the DPW sent another letter asserting a lien for $15, against Valenta s settlement, which it reduced to $10,000 to account for attorneys fees. Valenta s attorney promptly mailed the DPW a check for $10,000 to satisfy the lien. 3 A.H. is a young girl who suffered brain injuries following surgery to correct a congenital heart defect. The DPW enrolled A.H. in an MCO and paid capitation fees totaling $25, on her behalf. The MCO s payments to A.H. s health care providers totaled $171, The DPW also paid $1, on a fee-forservice basis for A.H. s benefit. In June 2005, A.H. filed a medical malpractice claim against her doctors, which was settled in April 2007 for an undisclosed amount. After the settlement, the DPW asserted a lien for $106, to reflect the cost of her medical care, less attorneys fees and pro-rata costs. A.H. challenged the validity of the DPW s lien, and, instead of paying the lien directly, A.H. s mother obtained court approval to place the disputed funds in an escrow account pending the outcome of this litigation. 2 2 In addition to challenging the validity of the DPW s liens generally, A.H. asserts that the DPW s practice of recouping the cost of medical care exceeding the capitation fees it paid is impermissible. The District Court order did not address whether the DPW is limited to recouping the amount it paid in capitation fees, or if it could instead seek reimbursement for the full amount of medical payments expended by the MCO. Because this issue was not addressed below, we decline to address it in this interlocutory appeal. 6

7 B In May 2006, Tristani and Valenta commenced a putative class action in the District Court against: Estelle B. Richman, Pennsylvania s Secretary of Public Welfare; Feather Houston, Richman s predecessor; and the DPW. Tristani and Valenta sought a refund of their payments to the DPW, as well as declaratory and injunctive relief invalidating Medicaid liens generally. They argued that the DPW s claims were prohibited by the anti-lien and anti-recovery provisions of the Social Security Act. See 42 U.S.C. 1396p(a)-(b). Alternatively, they asserted that Pennsylvania s scheme for recouping medical expenses from Medicaid recipients was impermissible under the Supreme Court s holding in Ahlborn. 3 3 In Ahlborn, the Supreme Court reviewed an Arkansas law that permitted the imposition of liens on recoveries made by Medicaid beneficiaries against third parties. Pursuant to the Arkansas statute, the state could impose a lien in an amount equal to the medical assistance payments made on behalf of Medicaid beneficiaries, without regard to what portion of the settlement related to medical costs. The Court assumed without deciding that liens limited to medical costs are an implied exception to the federal law prohibiting liens on the property of Medicaid beneficiaries. Ahlborn, 547 U.S. at ( To the extent that the forced assignment is expressly authorized by the terms of 1396a(a)(25) and 1396k(a), it is an exception to the anti-lien provision.... [T]he exception carved out by 1396a(a)(25) and 1396k(a) is limited to payments for medical care. ) (internal citation omitted). The Court held that, because the Arkansas statute permitted the State to lien portions of the recovery not relating to medical costs, it was preempted by 7

8 Several months after Tristani and Valenta commenced their action, Richman and Houston (collectively, the Secretaries) filed a motion to dismiss. Following two amendments to the complaint, the Secretaries again filed a motion to dismiss and, after oral argument, the District Court denied their motion without prejudice. In April 2008, Richman and Houston filed a motion for summary judgment. The next day, Tristani and Valenta filed a motion for partial summary judgment in which they sought a declaration that: (1) Pennsylvania s practice of asserting Medicaid liens is invalid; (2) the DPW s ability to recover medical payments made by MCOs is limited to the capitation payments made by the State; and (3) Pennsylvania s current method of determining the portion of a settlement that constitutes medical costs violates the Supreme Court s holding in Ahlborn. The District Court issued a comprehensive opinion denying Tristani and Valenta s motion for partial summary judgment and granting in part and denying in part the Secretaries motion. The District Court determined that federal law prohibits the DPW from asserting liens against third-party recoveries obtained by Medicaid beneficiaries. Nevertheless, the District Court denied Tristani s and Valenta s claims for monetary damages, holding that the Secretaries were entitled to qualified immunity. The District Court also held that Pennsylvania s practice of apportioning settlements between medical costs and other portions of the recovery was permissible under Ahlborn. The Court denied the Secretaries motion for summary judgment as to Tristani s and Valenta s claims for declaratory and injunctive relief, but noted an unresolved issue regarding their standing to seek equitable relief. After the District Court issued its order, the parties filed a joint motion to add a party to cure the potential standing problem. the federal ban on placing liens on the property of Medicaid beneficiaries. 8

9 The Court permitted the parties to add A.H. who, both parties agreed, had standing with respect to the remaining issues. The District Court thus amended its prior order to deny the Secretaries motion for summary judgment with regard to the validity of 62 PA. STAT. ANN. 1409(b)(7) Pennsylvania s statutory mechanism for attaching liens to recoveries made by Medicaid beneficiaries and granted the parties motion to certify an interlocutory appeal pursuant to 28 U.S.C. 1292(b). II Although the parties agree that we have jurisdiction over this interlocutory appeal, we have an independent obligation to determine whether subject-matter jurisdiction exists, even in the absence of a challenge from any party. Arbaugh v. Y&H Corp., 546 U.S. 500, 514 (2006) (internal citation omitted). The District Court had jurisdiction over the Beneficiaries federal claims pursuant to 28 U.S.C. 1331, and exercised supplemental jurisdiction over their state law claims pursuant to 28 U.S.C. 1367(a). The District Court certified an interlocutory appeal to this Court pursuant to 28 U.S.C. 1292(b), which provides: [w]hen a district judge, in making in a civil action an order not otherwise appealable under this section, shall be of the opinion that such order involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation, he shall so state in writing in such order. The Court of Appeals which would have jurisdiction of an appeal of such action may thereupon, in its discretion, permit an appeal to be 9

10 taken from such order, if application is made to it within ten days after the entry of the order.... Consistent with the requirements of 1292(b), the Secretaries timely petitioned this Court for leave to appeal. After we granted the Secretaries petition for interlocutory appeal, the Beneficiaries filed a notice of cross-appeal in the District Court. The first issue we must confront with respect to our jurisdiction is whether the Secretaries have standing to appeal the order of the District Court. The general rule is that a party may not appeal a favorable decision. Ryan v. C.I.R., 680 F.2d 324, 325 (3d Cir. 1982) (citing Elec. Fittings Corp. v. Thomas & Betts Co., 307 U.S. 241, 242 (1939)). Here, although the District Court held that the Medicaid liens asserted by the DPW were impermissible, it ultimately concluded that Richman and Houston were entitled to qualified immunity. Thus, the Secretaries prevailed on this issue in the District Court. Cf. Horne v. Coughlin, 191 F.3d 244, (2d Cir. 1999) (noting that when a District Court makes an adverse constitutional holding followed by a determination that qualified immunity exists, appellate review of the constitutional decision may be precluded for lack of standing). After issuing its opinion, however, the District Court permitted the parties to add A.H. to the litigation to ensure that the Beneficiaries would have standing to pursue declaratory and injunctive relief. Following the addition of A.H., and prior to certifying this interlocutory appeal, the District Court amended its order to deny the Secretaries motion for summary judgment with respect to the validity of the Pennsylvania law permitting Medicaid liens. This issue was included in the District Court s certification for interlocutory appeal, and constitutes an adverse judgment from which the Secretaries may properly seek appellate review. 4 4 We also note that the Supreme Court has held that [i]n an appropriate case, appeal may be permitted from an 10

11 Having decided that we possess jurisdiction over the Secretaries appeal, we must now determine whether we have jurisdiction over the Beneficiaries cross-appeal. Although they filed a notice of cross-appeal in the District Court, the Beneficiaries failed to petition for leave to appeal in this Court. We must decide whether this omission deprives us of jurisdiction over the issues raised in their cross-appeal. Stated differently, when an appellant has timely sought and received leave to appeal, is a cross-appellant obligated to separately seek permission to appeal? 5 adverse ruling collateral to the judgment on the merits at the behest of the party who has prevailed on the merits, so long as that party retains a stake in the appeal satisfying the requirements of Art[icle] III. Deposit Guar. Nat l Bank, Jackson, Miss. v. Roper, 445 U.S. 326, 334 (1980). To the extent the Secretaries otherwise lack standing, we hold that their continuing interest in the outcome of this litigation, combined with the importance of the District Court s collateral determination regarding the validity of the Pennsylvania law, makes this an appropriate case for appellate review. 5 The Courts of Appeals for the Second and Tenth Circuits have held that 1292(b) requires a separate crossapplication for leave to file a cross-appeal. See Tranello v. Frey, 962 F.2d 244, (2d Cir. 1992); United Transp. Union Local 1745 v. City of Albuquerque, 178 F.3d 1109, 1114 (10th Cir. 1999) (finding no jurisdiction under 1292(b), but exercising pendent appellate jurisdiction); cf. Roth v. King, 449 F.3d 1272, (D.C. Cir. 2006) (recognizing the tension between the filing requirements of Rule 5 and the jurisdiction granted by 1292(b), but avoiding the problem by declining to engage in discretionary review). 11

12 In Yamaha Motor Corp., U.S.A. v. Calhoun, 516 U.S. 199, 205 (1996), the Supreme Court explained: [a]s the text of 1292(b) indicates, appellate jurisdiction applies to the order certified to the court of appeals.... [Therefore,] the appellate court may address any issue fairly included within the certified order. Accordingly, when we granted the Secretaries petition for leave to appeal pursuant to 1292(b), we obtained jurisdiction over the entire certified order of the District Court, including any portions that were decided in the appellant s favor. See United Transp. Union Local 1745 v. City of Albuquerque, 178 F.3d 1109, 1122 (10th Cir. 1999) (Briscoe, J., concurring and dissenting). Thus, to the extent that the issues raised in the Beneficiaries crossappeal were included in the certified order of the District Court, they are properly before us on appeal. 6 We note that both the Second and Tenth Circuits based their analyses in part on Federal Rule of Appellate Procedure 5(b), which governs appeals by permission, and provides that a cross-petition for leave to file a cross-appeal may be filed within 10 days after the initial petition is served. At the time these cases were decided, it was understood that Rule 5 was jurisdictional. More recently, however, the Supreme Court has clarified that non-statutory rules of procedure cannot be regarded as jurisdictional because [o]nly Congress may determine a lower federal court s subject-matter jurisdiction. Kontrick v. Ryan, 540 U.S. 443, (2004). 6 Our holding with respect to our jurisdiction under 1292(b) should not be understood to imply that cross-appeals may be omitted with impunity. Federal Rule of Appellate Procedure 5(b)(2) requires a putative 1292(b) cross-appellant to file a cross application within 10 days after the [initial] petition is served. Because Rule 5(b)(2) is not jurisdictional, however, it must be raised by a party. See Kontrick v. Ryan, 540 U.S. 443,

13 III We exercise plenary review over an order resolving crossmotions for summary judgment. Cantor v. Perelman, 414 F.3d 430, 435 n.2 (3d Cir. 2005). In determining whether summary judgment is appropriate, we apply the same standard as the District Court. Bucks Cnty. Dep t of Mental Health/Mental Retardation v. Pennsylvania, 379 F.3d 61, 65 (3d Cir. 2004). Summary judgment should be granted when the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law. FED. R. CIV. P. 56(a). IV A Having established that jurisdiction lies, we proceed to the principal substantive issue, namely, the lawfulness of the DPW s practice of imposing liens on judgments or settlements that Medicaid beneficiaries obtain from third parties. We begin with an overview of the applicable statutory provisions. The Social Security Act provides that, as a condition to receiving Medicaid assistance, states must require individuals to assign [to] the State any rights... to support... and to payment for medical care [the individual has] from any third party. 42 (holding that court-adopted claim processing rule can... be forfeited if the party asserting the rule waits too long to raise the point ). In this appeal, the Secretaries have forfeited their Rule 5(b)(2) argument. Although they make a one-line reference to the impropriety of the Beneficiaries cross appeal in a footnote to their opening brief, and again in a footnote to their reply brief, they also concede that we have discretion to consider issues presented by the Beneficiaries in their cross-appeal. 13

14 U.S.C. 1396k(a)(1)(A). The Act also requires states to ascertain the legal liability of third parties... to pay for care and services under the plan and, in any case where such a legal liability is found to exist after medical assistance has been made... [, to] seek reimbursement... to the extent of such legal liability. Id. 1396a(a)(25)(A)-(B). However, and of significance to this appeal, the Act also provides: No lien may be imposed against the property of any individual prior to his death on account of medical assistance paid or to be paid on his behalf under the State plan, except (A) pursuant to the judgment of a court on account of benefits incorrectly paid on behalf of such individual, or (B) in the case of the real property of an individual [who is in a nursing home and required by law to spend his own income on those expenses, and who cannot reasonably be expected to return home.] Id. at 1396p(a)(1). This is known as the anti-lien provision. Of equal importance, the Act provides that [n]o adjustment or recovery of any medical assistance correctly paid on behalf of an individual under the State plan may be made, except [in limited circumstances not at issue in this case]. Id. at 1396p(b)(1). This is known as the anti-recovery provision. B 14

15 Pennsylvania has enacted a detailed statutory framework in an attempt to comply with the requirements of the Social Security Act. Consistent with the federal mandate, 62 PA. STAT. ANN. 1404(b) provides that [t]he acceptance of medical assistance benefits shall operate as an assignment to [the DPW], by operation of law, of the assistance recipient s rights... to payment for medical care from any third party. Although a Medicaid beneficiary must assign the portion of her recovery relating to medical costs to the State, Pennsylvania s statutory framework provides the beneficiary with a number of options for prosecuting the remainder of her claim against a third party. For example, after providing notice to the DPW, a Medicaid beneficiary may elect not to include medical costs as damages in her lawsuit against a third party. See 62 PA. STAT. ANN. 1409(b)(5). 7 If the beneficiary chooses not to include medical costs as part of her damages, the State will not be involved in the prosecution of her claim. When a Medicaid beneficiary chooses to pursue damages for medical costs, however, the method of transferring this portion of the recovery to the State will vary depending on whether the State is involved in the lawsuit. If the action is prosecuted by the Medicaid beneficiary alone, after the payment of litigation expenses and attorneys fees, the court or agency shall allocate the judgment or award between the medical portion and other damages and shall allow [the DPW] a first lien against the medical portion of the judgment or award, [in the] amount of [the DPW s] expenditures for the benefit of the beneficiary under the medical 7 Although 1409(b)(5) was not enacted until 2008, it is relevant because the Beneficiaries seek declaratory and injunctive relief. 15

16 assistance program. Id (b)(1). 8 By contrast, if the claim is prosecuted jointly by the beneficiary and the DPW, after payment of litigation expenses and attorneys fees, the court or agency shall allocate the judgment or award between the medical portion and other damages and shall make an award to [the DPW] out of the medical portion of the judgment or award [in] the amount of [the] benefits paid on behalf of the beneficiary under the medical assistance program. Id (b)(2). C The Beneficiaries claim the DPW s practice of asserting liens on recoveries made by Medicaid recipients violates the antilien and anti-recovery provisions of the Social Security Act. Despite having assigned to Pennsylvania the portion of their recovery relating to medical costs, the Beneficiaries claim they retain a property interest in their choses in action, including their claims for medical expenses. Thus, they claim that (b)(1) which permits Pennsylvania to take a lien on the portion of a settlement that constitutes medical costs effectively authorizes the imposition of a lien on a Medicaid beneficiary s property in violation of federal law. The DPW counters that its liens fall within an exception to the federal prohibitions on 8 Section was enacted in response to the Supreme Court s decision in Ahlborn, to permit settlements or judgments that include Medicaid and non-medicaid components to be apportioned between the two items of recovery. In all respects relevant to the imposition of liens at issue here, it is identical to 1409(b)(7), which was in force before Ahlborn and which remains valid law except as modified by s apportionment provisions. See 62 PA. STAT. ANN. 1409(b)(7) ( [T]he court... shall... allow as a first lien against the amount of such judgment or award, the amount of the expenditures for the benefit of the beneficiary under the medical assistance program. ). 16

17 imposing liens on the property of Medicaid beneficiaries and on recovering medical assistance payments made on their behalf. The DPW further asserts that the Supreme Court s decision in Ahlborn, in which the Court assumed without deciding that such an exception exists, demonstrates that its liens are valid. The District Court held that the Pennsylvania statute authorizing Medicaid liens was preempted by federal law. The District Court recognized the tension between the plain language of the anti-lien and anti-recovery provisions of the Social Security Act, which prohibit states from recouping medical assistance payments made on behalf of Medicaid beneficiaries, and the forced assignment and reimbursement provisions of the Act, which require states to recover medical assistance payments made on behalf of beneficiaries. Relying on dicta in the Ahlborn decision, the District Court determined that Medicaid beneficiaries, despite having assigned their recovery of medical costs to the State, retain an enduring property interest in this portion of their recovery. See Tristani v. Richman, 609 F. Supp. 2d 423, 480 (W.D. Pa. 2009) ( Since Pennsylvania law permitted Tristani and Valenta to recover the entire amounts of their damages (including the amounts of payments made by the DPW to provide them with medical assistance), the entire settlement awards were their property. (citing Ahlborn, 547 U.S. at 285)). The District Court then attempted to harmonize the conflicting provisions of the Social Security Act by interpreting them to require Pennsylvania to take an active role in the recovery of medical costs, either by intervening in lawsuits initiated by Medicaid beneficiaries or by directly pursuing liable third parties. 9 Based on this approach, the 9 Like the District Court, our dissenting colleague suggests that the language of the Social Security Act implies that Congress wanted states to initiate suits against or intervene in actions against liable third parties, and wanted Medicaid recipients to cooperate in those efforts by providing state agencies with any information they might require. 17

18 District Court held that (b)(1) is preempted by the antilien provision. As we shall explain, we are unpersuaded by the District Court s analysis. 10 Dissent Typescript at 7. Although it is true that 1396a(a)(25)(A) speaks of pursuing claims against... third parties, we note that 1396a(a)(25)(A) addresses only the duty of the state or local agency to ascertain the legal liability of third parties whereas 1396a(a)(25)(B), which discusses what must be done once a third party is deemed liable, provides only that the State or local agency will seek reimbursement... to the extent of such legal liability. The absence of the phrase against... third parties from the portion of the statute that directs states to seek reimbursement is telling. 10 To date, no federal appellate court has ruled on the validity of Medicaid liens limited to medical costs. Numerous district courts and state appellate courts, however, have assumed that such liens are valid in the wake of Ahlborn. See, e.g., Armstrong v. Cansler, --- F. Supp. 2d ---, 2010 WL (W.D.N.C. 2010) (endorsing the use of Medicaid liens limited to the portion of a settlement attributable to medical costs as consistent with Ahlborn); State v. Peters, 946 A.2d 1231 (Conn. 2008) (concluding that federal law does not prohibit the use of liens for recouping medical expenses); see also In re Zyprexa Prods. Liab. Litig., 452 F. Supp. 2d 458 (E.D.N.Y. 2006) (permitting the use of Medicaid liens limited to the portion of a recovery attributable to medical costs); Lima v. Vouis, 94 Cal. Rptr. 3d 183 (Cal. Ct. App. 2009) (upholding the use of Medicaid liens to recover medical expenses after Ahlborn, but requiring the trial court to determine what portion of a settlement 18

19 constitutes payment for medical expenses); Russell v. Agency for Health Care Admin., 23 So. 3d 1266 (Fla. Dist. Ct. App. 2010) (permitting the use of Medicaid liens to reimburse the State for medical costs); Dep t of Health and Welfare v. Hudelson, 196 P.3d 905 (Idaho 2008) (holding that liens on medical costs are an exception to the anti-lien provision); Weaver v. Malinda, 980 So. 2d 55 (La. Ct. App. 2008) (permitting the State to take a Medicaid lien limited to the portion of a settlement allocated to medical expenses); Andrews v. Haygood, 669 S.E. 2d 310 (N.C. 2008) (permitting the use of liens to recover Medicaid expenses limited to medical costs); Edwards v. Ardent Health Servs., -- - P.3d ---, 2010 WL (Okla. Civ. App. 2010) (upholding the use of Medicaid liens limited to the portion of a recovery attributable to medical costs); E.D.B. v. Clair, 987 A.2d 681 (Pa. 2009) (acknowledging that Ahlborn s holding invalidated the Arkansas law while permitting Pennsylvania s DPW to place liens on the medical expenses of Medicaid recipients). Although these decisions have permitted the use of Medicaid liens limited to medical costs, the majority of them have not clearly articulated their rationale for doing so. Indeed, some courts appear to be under the misapprehension that the Supreme Court held such liens to be permissible in Ahlborn. See, e.g., In re Matey, 213 P.3d 389, 394 (Idaho 2009) ( [A] state may not seek reimbursement from damages awarded for lost earnings, lost household services, noneconomic injury and the like because, according to the Supreme Court, those damages are the property of the Medicaid recipient. However, the Supreme Court specifically stated that damages received for medical care did not 19

20 D Our task is to give effect to the will of Congress, and where its will has been expressed in reasonably plain terms, that language must ordinarily be regarded as conclusive. Griffin v. Oceanic Contractors, Inc., 458 U.S. 564, 570 (1982) (quoting Consumer Prod. Safety Comm n v. GTE Sylvania, Inc., 447 U.S. 102, 108 (1980)). As outlined above, the Social Security Act requires states to seek reimbursement for medical assistance payments made on behalf of Medicaid beneficiaries whenever legal liability [of a third party] is found to exist. 42 U.S.C. 1396a(a)(25)(B). Notably, this provision is silent regarding the method by which reimbursement must be sought. The Act also states that, as a condition to eligibility, Medicaid beneficiaries must assign to the state any right they may have to recover medical costs from a third party. The difficulty we perceive in this case is that the plain language of these provisions conflicts with the equally plain prohibition against states imposing liens... against the property of Medicaid beneficiaries, 42 U.S.C. 1396p(a)(1)(A), or recover[ing]... any medical assistance correctly paid on behalf of an individual, id. 1396p(b)(1). The initial question, therefore, is whether the plain language of these provisions can be reconciled. The District Court attempted to resolve the apparent conflict by interpreting the Act to require intervention by the states. However, the Court did not adequately explain, nor is it apparent to us, how its holding is consistent with the anti-recovery provision, which prohibits states from seeking adjustment or recovery of any medical assistance correctly paid on behalf of an individual under the State [medical assistance] plan. Id. By its terms, the anti-recovery provision limits the ability of states to recover medical assistance payments made on behalf of Medicaid constitute property subject to the anti-lien provisions. ) (citing Ahlborn, 547 U.S. at 284). 20

21 beneficiaries, regardless of the specific collection method utilized. Thus, the District Court s conclusion that Pennsylvania must intervene in tort actions filed by Medicaid beneficiaries cannot be reconciled with the anti-recovery provision. E The Supreme Court has stated that [w]hen interpreting a statute, the court will not look merely to a particular clause in which general words may be used, but will take in connection with it the whole statute... and the objects and policy of the law, as indicated by its various provisions, and give to it such a construction as will carry into execution the will of the legislature. Kokoszka v. Belford, 417 U.S. 642, 650 (1974) (quoting Brown v. Duchesne, 19 How. 183, 194 (1857)). When we consider the Social Security Act as a whole, including its text, structure, purpose, and legislative history, we conclude that the DPW s practice of asserting liens against that portion of a Medicaid beneficiary s recovery relating to medical costs must be viewed as an exception to the anti-lien and anti-recovery provisions. The anti-lien and anti-recovery provisions significantly predate the reimbursement and forced assignment provisions. As we shall explain, Congress was pursuing different goals in enacting these two sets of provisions. While the anti-lien and anti-recovery provisions were intended to ensure that Medicaid beneficiaries were not forced to directly bear the costs of their medical care, the reimbursement and forced assignment provisions were intended to allow states to recoup their expenditures for medical assistance payments when third parties are held liable. By allowing states to recover these expenditures, Congress both protected the public fisc and ensured that beneficiaries did not receive a windfall by recovering medical expenses they did not pay. In order to effectuate the goals animating these conflicting provisions, we 21

22 must view the reimbursement and forced assignment provisions as exceptions to the anti-lien and anti-recovery provisions An examination of the Social Security Act reveals that Congress has consistently pursued the dual goals of protecting the personal property of Medicaid beneficiaries while ensuring that liable third parties reimburse states for Medicaid expenditures. As we shall describe below, the Act s evolution over time reveals that Congress has not viewed these objectives to be in conflict. Rather, the available evidence indicates that Congress did not intend that liens for medical costs would fall within the scope of the anti-lien and anti-recovery provisions. The anti-lien and anti-recovery provisions were first incorporated into the Social Security Act in 1960, some five years before Medicaid came into being. They required state medical assistance plans for the aged to: 11 This analysis is entirely consistent with the Supreme Court s holding in Ahlborn. The purpose of the anti-lien and anti-recovery provisions was to ensure that Medicaid beneficiaries would not bear the burden of their medical costs during their lifetimes. Consequently, to the extent that a settlement or judgment paid by a third party does not pertain to medical costs, the state has no recourse to those funds. As the reimbursement and forced assignment provisions make clear, however, the portion of a settlement or judgment that does relate to medical costs properly belongs to the state. To hold to the contrary would be to provide Medicaid beneficiaries with a windfall in direct contravention of the congressional mandate that states recoup the costs of medical assistance from liable third parties. 22

23 provide that no lien may be imposed against the property of any individual prior to his death on account of medical assistance for the aged paid or to be paid on his behalf under the plan (except pursuant to the judgment of a court on account of benefits incorrectly paid on behalf of such individual), and that there shall be no adjustment or recovery (except, after the death of such individual and his surviving spouse, if any, from such individual s estate) of any medical assistance for the aged correctly paid on behalf of such individual under the plan. 42 U.S.C. 302(a)(11)(E) (Supp. II ). 12 By its terms, this provision creates a system in which elderly recipients of 12 In 1962, the language of 302 was duplicated in 42 U.S.C. 1382(a)(15)(D), a provision governing state plans for aid to the aged, blind, or disabled. See Pub. L , tit. I, 141(a), 76 Stat. 172, 197 (1962). Discussion during hearings before the Senate indicates that the purpose of the provision was to protect the homes of blind recipients of aid. See An Act to Extend and Improve the Public Assistance and Child Welfare Services Programs of the Social Security Act, and for Other Purposes: Hearings Before the Comm. on Finance of the S., 87th Cong. 362 (1962) (statement of John F. Nagle, Chief, Washington Office, National Federation of the Blind) ( State laws which require an applicant for blind aid to accept a lien on his property before he will be granted assistance, serve to convince the applicant as nothing else can of the full extent of his pauperized state.... A lien is such a restriction upon property and its free use that, although a home may represent a lifetime of thrift and denial, it is not available for use to the blind owner who wishes to make a 23

24 new start in life. ). In 1965, largely the same language was included in 42 U.S.C. 1396a(a)(18), a provision governing federal grants to states for medical assistance programs. See Pub. L , tit. I, 121(a), 79 Stat. 286, 344 (1965); cf. S. REP. No , at 80 (1965) reprinted in 1965 U.S.C.C.A.N. 1943, 2020 (stating that pursuant to 1396a adjustment or recovery would be made only at a time when there is no surviving child who is under the age of 21 or who is blind or permanently disabled ). These three anti-lien and anti-recovery provisions remained in place until 1982, when Congress consolidated them into 42 U.S.C. 1396p. See Pub. L , tit. I. 132(b), 96 Stat. 324, 370 (1982). Section 1396p actually broadened the authority of states to seek reimbursement from Medicaid beneficiaries by allowing them, in certain circumstances, to impose liens on the homes of beneficiaries during their lifetimes. See S. REP. No , at 437 (1982) ( States are allowed to impose liens on real property including the home, of institutionalized [M]edicaid beneficiaries who the State determines, after notice and opportunity for a hearing, are reasonably likely to remain in a nursing home for the remainder of their lives. ). Section 1396p remains in force today, and has undergone numerous amendments adjusting the exact circumstances under which states may recover from Medicaid beneficiaries. For purposes of our analysis, however, the various iterations of the anti-lien and anti-recovery provisions are irrelevant. Our focus is on the fact that the provisions have been in force since 1960, have been repeatedly re-enacted, and have consistently been animated by a legislative intent to insulate 24

25 medical assistance are insulated from paying the costs of their care during their lifetimes and the lifetimes of their surviving spouses. Nevertheless, this system, which ultimately allows a state to recoup its medical assistance expenditures directly from the estate of a deceased beneficiary, in no way entitles beneficiaries to retain monies paid to them by liable third parties in compensation for their medical costs. The legislative history of the anti-lien and anti-recovery provisions confirms this understanding. 13 As a Senate Report discussing the provision stated, pursuant to the congressional framework [a] State would not be permitted as a condition of medical assistance to impose a lien on the property of a recipient during [her] lifetime.... However, the bill would permit the recovery from an individual s estate after the death of [her] spouse if one survives [her]. S. REP. No , at 6 (1960), reprinted in 1960 U.S.C.C.A.N. 3608, The report then explains that [t]his provision was inserted in order to protect the individual and [her] spouse from the loss of their property, usually the home, during their lifetime. Id. Congress s concern for protecting a Medicaid beneficiaries from the costs of their medical expenses, and, in particular, to protect the family home. 13 The Supreme Court has instructed that where... resolution of a question of federal law turns on a statute and the intention of Congress, we look first to the statutory language and then to the legislative history if the statutory language is unclear. Blum v. Stenson, 465 U.S. 886, 896 (1984). As we explained supra, the plain language of the forced assignment and reimbursement provisions of the Social Security Act irreconcilably conflicts with that of the anti-lien and anti-recovery provisions. Accordingly, recourse to legislative history is necessary here. 25

26 Medicaid beneficiary s personal assets not her interest in recovering medical costs paid on her behalf clearly animated the enactment of the anti-lien and anti-recovery provisions. Moreover, a beneficiary s property interest in her home is readily distinguishable from the inchoate interest that she retains in her chose in action, particularly since Congress has mandated assignment of that chose to the state. 14 We cannot agree that Congress intended these provisions to prohibit states from placing liens on recoveries from liable third parties, especially in light of the reimbursement and forced assignment provisions it later added to the Social Security Act. The reimbursement provision of the Act was first enacted in 1967, and required state medical assistance plans to provide: (A) that the State or local agency administering such plan will take all reasonable measures to ascertain the legal liability of third parties to pay for care and services (available under the plan) arising out of injury, disease, or disability, (B) that where the State or local agency knows that a third party has such a legal liability such agency will treat such legal liability as a resource of the individual on whose behalf the care and services are made available for [purposes of determining a potential recipient s eligibility for medical assistance]... [and] that in any case where such a legal liability is 14 We need not decide whether Medicaid beneficiaries have more than a nominal property interest in the portion of recoveries from third parties attributable to medical costs. Whatever the extent of that property interest, it is sharply curtailed by the forced assignment provision, which requires potential Medicaid beneficiaries to assign this interest to the state as a condition of eligibility. 26

27 found to exist after medical assistance has been made available on behalf of the individual, the State or local agency will seek reimbursement for such assistance to the extent of such legal liability. 42 U.S.C. 1396a(a)(25) (Supp. III v ). The plain language of this provision requires states to consider third-party liability when making Medicaid eligibility determinations, and to seek reimbursement of sums expended when third-party liability is unknown at the time payments are made. In this way, the reimbursement provision protects the public fisc while preventing Medicaid beneficiaries from receiving a windfall. Although the anti-lien and anti-recovery provisions were in force when the reimbursement provision was enacted, Congress made no attempt to reconcile this new requirement with the prohibition against states recovering medical assistance payments made on behalf of Medicaid beneficiaries. Instead, the statute simply requires states to consider any known third-party liability as an asset of the individual in determining eligibility, and to seek reimbursement when liability is discovered after medical assistance payments have been made. 15 The legislative history of the reimbursement provision confirms that Congress intended to ensure that states recover 15 The reimbursement provision permits states to deny Medicaid benefits outright when third-party liability is known at the time Medicaid eligibility is determined and to recover their outlays when third-party liability is later discovered. Thus, although the anti-lien and anti-recovery provisions protect the assets of the Medicaid beneficiary, the reimbursement provision demonstrates that Congress did not believe that individuals should be entitled to have their medical expenses paid twice. 27

28 medical assistance payments made on behalf of Medicaid beneficiaries whenever third parties are found liable for medical expenses. As stated during a Senate hearing: Unquestionably, many beneficiaries will be paid twice through receipt of benefits under the [M]edicaid program, and from obligations imposed upon the insurance industry by the liability system. To the extent that the [Medicaid] program is intended to assist the medically indigent, it is not consistent to apply [M]edicaid benefits to those whose needs are being met by a third party under a legal or contractual obligation. To the extent that health care protection is being provided from sources other than under the social security program, the resulting duplication is discriminatory and a wasteful, inefficient use[] of public funds. Social Security Amendments of 1967: Hearing Before the S. Comm. On Finance, 90th Cong (1967) (statement of Wallace M. Smith). The forced assignment provision of the Social Security Act was first enacted in As a condition of receiving Medicaid benefits, the forced assignment provision obligates states to require individuals to assign the State any rights, of the individual or of any other person who is eligible for medical assistance under this title and on whose behalf the individual has the legal authority to execute an assignment of such rights, to support (specified as support for the purpose of medical care by a court or administrative order) and to payment for medical care from any third party. 28

29 42 U.S.C. 1396k(a)(1)(A). By its terms, this provision requires individuals, as a condition of receiving Medicaid benefits, to confer upon the state their right to recover the costs of their medical care. This is further evidence of congressional intent to ensure that Medicaid beneficiaries do not receive a windfall by recovering medical costs they did not pay. Our review of the evolution of the various provisions of the Social Security Act reveals that the only way to harmonize the conflicting language of the anti-lien and anti-recovery provisions with the later-enacted reimbursement and forced assignment provisions is to conclude that the anti-lien and anti-recovery provisions do not apply to medical costs recoverable from liable third parties. The anti-lien and anti-recovery provisions evince congressional intent to protect the assets of Medicaid recipients, and to ensure that beneficiaries are not forced to personally bear the costs of their medical care. Meanwhile, the reimbursement and forced assignment provisions require states to recover the costs of medical assistance payments despite the apparent prohibition against seeking recovery of medical assistance payments. It defies common sense to conclude that Congress intended to protect the rights of Medicaid beneficiaries to recover medical costs that they never paid in the first place. Indeed, federal law requires beneficiaries to assign their right to recover such medical costs to the state, because it is the state not the beneficiaries that pays these costs. 2 Our conclusion that liens on medical costs are excepted from the anti-lien and anti-recovery provisions is bolstered by the forced assignment provision. The District Court viewed the forced assignment provision as evidence of congressional intent to require states to intervene in lawsuits initiated by Medicaid beneficiaries against third parties. We see it differently. 29

30 As the Secretaries correctly point out, a partial assignment typically creates a lien on a portion of the recovery in favor of the assignee. See, e.g., Matchett v. Wold, 818 F.2d 574, 576 (7th Cir. 1987) ( An ordinary lien attaches to property in being; the statutory attorney s lien attaches to an expectation [of recovery], the court thought the statute better described therefore as making the attorney in effect a partial assignee of his client s interest in the lawsuit.... ); Angeles Real Estate Co. v. Kerxton, 737 F.2d 416, 419 (4th Cir. 1984) ( [U]nder general common law principles, a partial assignment creates an equitable lien in favor of the assignee. ); Law Research Serv., Inc. v. Martin Lutz Appellate Printers, Inc., 498 F.2d 836, 837 (2d Cir. 1974) ( [T]he assignment of [part of] an existing right [under a judgment] creates an immediate lien in favor of the assignee that is valid against later lien creditors of the assignor. ). We do not believe that Congress would prohibit states from imposing liens to recoup medical costs while at the same time imposing a requirement that has the legal effect of creating such liens. The more logical conclusion is that Congress understood that the legal effect of the forced assignment provision would be to provide the states with a lien on recoveries of medical costs. Thus, in our view, the forced assignment provision is evidence of Congress s intent to except recoveries of medical assistance payments whenever third parties are found liable for them. Unlike the District Court, we do not believe that Congress intended to require states to intervene in Medicaid beneficiaries lawsuits in order to recoup medical costs from third parties. Congress enacted the forced assignment provision more than a decade after it began requiring states to seek reimbursement for medical costs from liable third parties. The purpose of the provision was to ensure that states were able to recoup their outlays. Thus, far from restricting the state s ability to recoup medical expenses, the forced assignment provision was intended to facilitate the state s recovery of those funds. 30